How will the U.S. pay for healthcare reform?

July 13, 2009

James Pethokoukis — James Pethokoukis is a Reuters columnist. The views expressed are his own —

You have to admire the confidence. “Don’t bet against us,” said President Barack Obama on Monday about the chances for healthcare reform. “We are going to get it done.” Not only that, Obama repeated his pledge that his plan “will not add to the deficit over the next decade.”

Sunny optimism may reign at the White House, but things are a bit gloomier over on Capitol Hill. An August deadline to get a bill passed looks likely to be broken. More delays mean lost momentum and rising odds that debate over the bill could linger into the tumult of the 2010 congressional election year.

What’s the hold-up? Money, of course.

At least half the plan — say, $500 billion or so over 10 years — will need to be paid for through higher taxes. But there have been few takers in Congress for either a) reducing the value of tax deductions for wealthier Americans or b) taxing employer-provided healthcare benefits.

The latest unloved plan is a surtax on high incomes, suggested by Representative Charles Rangel, chairman of the House Ways and Means Committee. But influential Democrats in the Senate quickly hint they are cool to the idea.

So anybody got a spare $500 billion?

“I could name you 20 different ways to pay for healthcare reform in 30 seconds, but they have all been ruled out by key members of Congress,” says Len Berman, a budget expert with the Urban Institute. What drives Berman nuts is that after talking to people in the White House and on Capitol Hill, he is sure they all understand the importance of getting healthcare costs under control and making sure any reform doesn’t make the deficit worse.

Then again, there’s nothing new in that. Despite full knowledge of the scary future budget numbers, Congress in 2003 passed a prescription drug benefit for the elderly without putting in a mechanism to pay for it. Experts now project that program has a bigger long-term liability than Social Security.

Berman thinks pulling a fiscal stunt like that again could sink the American government bond market. In any case, there are doubts that centrist “blue dog” Democrats would vote for healthcare reform that clearly makes the already huge budget deficit worse.

Another option would be to put healthcare on hold and wait until the economy improves. The public might be less skittish about higher taxes then and the Obamacrats — having successfully “fixed” the economy — might have more political capital to spend on new programs.

But such a delay would surely enrage party liberals who think the slow progress is all-too reminiscent of Bill Clinton’s failure to reform healthcare in 1994. “Imagine if the Republicans were in power with 60 votes and a wildly popular president and couldn’t pass tax cuts,” says Ryan Ellis of Americans for Tax Reform. “Democrats have their own base to worry about.”

If Obama wants some sort of reform bill to sign by year end, it may be a more minimalist package of greater healthcare benefits for children and perhaps a move toward some of his information technology, cost control and medical procedure evaluation goals. He can call it a “down payment.” Realistically, that’s about all he can really be confident of these days.

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